RulesandTrust 203the 1930s, this rule was used to enhance shareholder rights in areas
such as cumulative voting and dissemination of postmeeting reports.
Virtually anyone can satisfy the eligibility requirements for com-
pelling a corporation to include a shareholder proposal in the cor-
poration’s annual proxy statement. By law it is enough to own 1% or
$1,000 in market value of the corporation’s equity for one year, and
the costs of making proposals are borne by the company.
Shareholder proposals are often made by only nominal share-
holders, spearheaded by nonshareholder constituencies that harness
the shareholder proposal rule to effect social change. (This use ex-
ploded in the 1970s, with the famous Campaign GM that led to the
integration of GM’s board of directors.) Social policy advocates use
it to promote things such as reporting requirements concerning the
environmental impact of corporate actions, race and sex discrimi-
nation, and human rights activities. Sometimes these are in the in-
terests of shareholders, and sometimes they are not.
In the last few decades shareholders and other constituencies
have employed this device innumerable times. Although most cam-
paigns do not carry a majority vote, increasing numbers of proposals
win. But because everyone knows nominal shareholders can make
proposals, management can take lightly even proposals that win the
support of a majority of shareholders. Thus management often opts
not to implement a winning proposal. After all, if management be-
lieves in the proposal, it will adopt it without waiting for a constit-
uency initiative or vote.
More important than the shareholder proposal rule is the pos-
sibility of a corporate takeover. This can be effected either by proxy
contest or by tender offer. In a proxy contest, the more traditional
method of corporate takeover, a shareholder or group of shareholders
appeals to other shareholders to change control of the company by
electing new directors to the board. They argue their case in a proxy
statement delivered to all shareholders, and the incumbent group
presents its case in its own proxy statement. The shareholders vote,
and their voice is heard.
Before the late 1960s and early 1970s, Ben Graham lamented the
difficulty shareholders faced in changing poor management in this
way. (Graham knew firsthand about those difficulties, for he waged
a proxy contest to wrest control of a company earlier in his career.)^10
But proxy contests became far easier to wage and more effective in
that time, signaling the dawn of the corporate governance movement
that too kfirm hold in the 1980s. As a consequence of the rise in